A very volatile week ended almost unchanged, as the successful IPO of GM on Thursday was the main factor in stopping a correction process that began about two weeks ago, when indices hit new highs for 2010. The most interesting part of this shortened trading week in the US will be the storming by 138 million US consumers of retail stores on "Black Friday", the day after Thanksgiving.
In the technology sector, the entire food chain of manufacturing televisions, computers, telephones, and other gadgets depends very much on the world's hottest shopping season, which is in the period between "Black Friday" in the US through the Chinese New Year for 2011, the year of the rabbit, which will take place through the first half of February.
Orders for chips and screens for televisions, computers, and telephones, and essentially orders for every electronic component, including equipment to manufacture those components throughout 2011, will be impacted primarily by the level of demand during the next 90 days.
Cellular phones have been the hot product in every buying season for many years already, but according to a survey published this week by Goldman Sachs, which was carried out in three countries, 80% of the telephones that Americans, British, and Chinese will buy over the next three months will be smartphones.
The Chinese market will be a giant one for smartphones in the coming years. If this year 37 million devices will be bought there, which means penetration of 12%, then in 2014 no less than 260 million Chinese are expected to buy smartphones, representing penetration of 54% of the market's potential there.
In every shopping season there is a gadget for which it is its premiere season, and this year it will no doubt be Apple's iPad, which was launched only in April, and has already become a hit. In the September quarter, Apple sold more iPads than Macintoshes, a market it built with much effort over 30 years. Citi surveys shows that in 2011, 35 million tablet computers will be sold, most of them (74%) Apple's iPads.
If smartphones and iPads will be the hit of the coming shopping season from the US to China, where does it pay to invest? First of all, in Apple. But for investors with a fear of heights from a share at $300 and above, whose super executive, Steve Jobs, is apparently not the healthiest in the world, I recommend SanDisk Corporation (Nasdaq:SNDK), which trades at a single-digit P/E ratio.
Smartphone and tablet computer makers are battling each other, but the most advanced ammunition for all sides is supplied only by Sandisk - directly, or through licenses which it sells to others - with anything that is connected to the flash memory chips for storing data in those devices.
ECI Telecom and the Russians
"Globes" reported this week a deal that Shaul Shani proposed a sale of ECI Telecom Ltd., for $2.5 billion, to the president of Russia. At first glance the proposal seems far-fetched for two reasons: the price, and why the government should be involved in purchasing a company like that. But someone who is familiar with the history of Shani's deals knows that what seems to others far-fetched, on more than one occasion turns out to be a gold mine. If I were to guess where this original idea came to Shani, I would go as far as China.
Not many speak of this, but as the owner of ECI Telecom Shani knows very well to what extent his company is having difficulty competing against two big equipment makers from China, ZTE and Huawei. The Chinese did not build those two empires just as another good source of making big money, but mainly as a strategic infrastructure on which they will rely in the telecom world in an era of wired and mobile Internet, when the most sensitive and important information is on the Internet.
The Chinese realized over a decade ago already that they need to build at home their own Cisco and Ericsson, or else they will be dependent on foreign manufacturers for an infrastructure no less important than their military infrastructure. By the way, the founders of Huawei are former Chinese army officers, and it is not for naught that the Indians are concerned, and now the Americans, about awarding them important tenders, when they nearly always end up the cheapest since they are backed by the almost infinite credit lines of the Chinese government.
I assume that Shaul Shani realized one way or another that the Russians, like the Chinese, don't want to depend on foreign suppliers, European or American, and certainly not on those two Chinese companies, who win nearly every telecommunications tender - even in Russia. Russia is missing about 20 years of development in order to reach local advanced production of telecommunications equipment at the level of the two Chinese companies. The only way to quickly reach this goal is through the acquisition of a producer like ECI, which today has the world's most advanced knowledge. ECI was chosen this year as a supplier of solutions for BT's most advanced network.
Shani also knows that in order for a deal to go through, the government of Israel, which through the Chief Scientist funded ECI for many years, has to approve it. He also apparently knows that if the Russians are so enthusiastic about a deal, the Israeli government has enough requests in other sensitive areas that Russia can fulfill in order to get the approval.
As we are still on the theme of stock recommendations, and not global politics, then similar to the recommendation of Sandisk as an ammunition supplier, I recommend EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH). Those Chinese companies, the Europeans, Americans, and also ECI, all rely on EZchip's processors, in the infrastructure equipment that carries the tremendous volume of traffic of the new telecommunications world.
Published by Globes [online], Israel business news - www.globes-online.com - on November 23, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010